A Modest Proposal

The system I propose functions like a third party or liability insurance. The payouts are minimal, and the members can control them with incentives, penalties, referendums, information, and counseling services. This system encourages long-term savings, keeping premiums low. The self-managed portion of the insurance is the largest part. 80% of the premiums is left in the beneficiary's hands, to be used at his/her discretion. The other 20% is the ‘catastrophic fund’ component, which is managed by a small administration with membership representation. The catastrophic fund is egalitarian among members, while the self-managed account is individual. The separation in personal accounts verifies that the ‘over-users’ could never deplete (or influence) the funds of other members. Each member’s personalized account must be used first before he/she could apply for catastrophic coverage. Most probably, hospital emergency departments will be qualified to define an emergency for the purpose of claiming the catastrophic fund. Even so, the catastrophic fund’s administration will set conditions that must be met before a claim is approved, and periodically set the equal amount due to the beneficiary. You may recognize that this ‘catastrophic fund’ is very different to the one with the same name in the Medicare system. We are living with recession in some areas of the economy, inflation in other areas, and high inflation in most medical services. Inflation is detrimental in any economic system, even more in medical services and its insurance. Medical insurance intends to cover a person who joins at early age, 18 or 20, or even earlier when covered by his/her parents, and continues providing coverage until death, around the age of 76. Any economic system as that increases spending today at a pace double the rate of inflation is doomed to collapse. I propose that the medical inflation rate be pushed lower than the general inflation, as to provide a margin for innovation and development. As prescribed by the Friedman School of Economics, ‘crash therapy’ is the best medicine against inflation when the side-effects are affordable. If ‘crash therapy’ seems to be too harsh, it could be dealt in portions over period of time, so that its final effect could be achieved. On the other side of the coin, the margin for innovation should be decided by the whole population, not by politicians alone, as it is done today. The cost/benefit ratio should be a matter of public concern, free of the influence of interest groups. In a similar fashion, the level and quality of services should not be an artificially controlled factor, such as the external beauty of clinics, but a continuous decision of the general public.

For long term economic systems as health insurance, there is only one word that best describes how to continue functioning in a viable form. This word is SAVINGS.

The American public, through budgetary funding, spends eight times more on health care for people over 65 than on the average citizen, as stated in an article by Pete Peters on and Neil Howe. I am limiting myself to the American medicine, but today we can transport this same problem to every other country and medium. Older people naturally consume more health services than the young, which is not the case for the consumption of food, clothing, housing and entertainment. Only long term savings would provide the means to cover for them. Our individual plans will promote competition among providers, increasing efficiency and consumer acceptability. This is in contrast to the present system, where the provider and the third party are the main beneficiaries. On pure economic grounds, this is an anomaly. I expect to be hearing from readers proposing to implement savings in order to save the environment and our planet!

My proposed system, Self Managed Health Insurance (SMHI), calls for frequent referendums, to change the internal policies as they should be in any system where the payer is also the consumer. Our national budgets are set today by delegation, or representation, through the Executive, Legislative and Judicial administrations. The referendum mechanism is seldom used, as in California’s Proposition 17 in the 80's. But in this SMHI, referendums are the principal policy-making function, converting the consumer, the share-holder, to a kind of regulator. SMHI will function as a ‘share-holders’ corporation, where the amount of money saved is proportional to the number of votes a member has. Since the strongest and longest term savers have more clout, the over-user and over-spender will be in the minority, with little power to decide when and how he/she may bankrupt the system. By definition, this type of system (SMHI) cannot assume debt that it cannot return. The catastrophic fund should function through a ‘floating key’ that allocates the benefits according to the number of claims and the available funds in the coffer. The increase or decrease of the catastrophic fund is a prerogative of the members through the referendums. According to different sources, per capita health expenses in America is around 12 to 17% of the GDP. I propose in SMHI to start premiums at 4% of the gross family income, and gradually increase relative to age, up to 8%.

Second Opinions

Others propose to 'copy' from foreign plans, as the British and Canadian National Health Services (NBSs), which seem superficially ‘cheaper,’ not realizing that those also fail in their own countries, due to the same causes as their American counterpart fails. The critics don't say that the British are paying a ‘second’ insurance to 20 private hospitals so they can jump ahead of the queue, and that Canadians across the border to have special tests that are offered less in Canada. I saw in Montreal two citizens paying ‘private’ insurance to large hospitals to get ‘special’ treatment, or just more attention (personal attention) should they request it. But subsidies act the other way too. The same drugs in Canada are cheaper than in the United States, so patients in Vermont are crossing the border to buy subsidized drugs at the expense of the Canadian taxpayer. Administrative measures, called Health Care Cost Containment, with its Certificates of Need, Hospital Utilization Committees, and the action of health service authorities have mostly failed in their declared purpose.
The Diagnostic Related Groups (DRGs), in effect since 1984-5, tried to achieve some reduction in hospitalization reimbursement but did not reach its intended goal. They save money in one section and create new problems that waste money in another. State legislatures, such as in Oregon, tried dealing with the Welfare crisis by cutting services to save money for other services.
Ironically, in 1996 President Clinton was agreeing to reform Welfare by passing the mess to the States. As already mentioned above, new solutions such as Health Maintenance Organizations (HMOs), which were well known in other countries like England, since 1948, and Israel since the early '20s, were thought to cheaper and more proper for the majority of the population. But even two fifths of those were already losing money by 1998. The States, as a measure of not having any other option, are forcing Medicare and Medicaid enrollees to join an HMO, as is the case in New Jersey. Although eventually most of the future health insurance schemes may become HMOs, there is no guarantee that they will be cheaper or more efficient than the solution I am proposing here. I therefore chose to name my idea “The Ultimate Health Insurance System.” The only real consequence of the expansion of HMOs, if they really expand as most observers predict, is that the quality of medicine will be lower in many ways. Medicare covers today around 40 million+ Americans, but 'Medigaps' have developed in it, a new term for the beneficiary having to pay extra insurance to make up for the two areas where Medicare falls short: The costs of treating acute medical problems, and the costs of long-term care of chronic ailments and disability. This is after its budget was increased in 1988 by $33 billion for the ensuing 5 years. Cuts in 1990 erased most of these increases, in global numbers, which was the case in following years.
Another crisis that is seldom mentioned is already present: the huge number of uninsured people and patients with unpaid healthcare debt, causing small hospitals to close down. The crooked system has created of two separate kinds of Americans: Those protected by insurance, and those that have to fend for themselves for lack of adequate insurance. This has already produced some friction, which will only increase in the future. In the 1980's, the larger hospitals suffered most from Medicare cuts and the introduction of DRG. Today, it is the turn of the smaller hospitals. This produced another trend: large hospital chains swallowing the bankrupt or suffering small community hospitals.
I do not approach these problems in the way that they have been dealt until now, but I intend to break the vicious circle of pouring money and then sucking the life out of it piecemeal. The social entitlements of the low-income citizens are very much interrelated, and for centuries the upper ruling classes controlled and managed these entitlements. They treat the lower classes at times as servants, others through philanthropies, and in modern times with whole-sale largesse and handouts. In the past, it seemed that a country with surpluses, as we were in the ‘40s and ‘50s, and again in the ‘90s, could afford to take a few million people under its wings. It became a long term miscalculation, both numerically and in principle. Numerically it is unaffordable, and in principle the bad consequences offsets the good intentions of the reformers. Pardon, President Clinton, but you will be remembered as giving a bad example in just a few years. I regret to do a dire prophesy, but the past history always showed this the case. To analyze the factors of the health insurance crisis is not an easy task. The huge number of books and articles on the subject and the many opinions on the subject only confuse the issue. I am limiting myself to a minimal size as possible, and so what is intended in here is to try to teach the principles by which we may have a sound health insurance, that is at the same time affordable and simple for the beneficiary to conduct by him/herself, and reasonable efficient, both in management and in quality. If it could be simple as I think, to be handled by the beneficiary, the administrative costs will be negligent. The management of the internal mechanism of this plan will be easy to understand and put to work by the public itself.

How a Disease Develops

Richard D. Lamm in his 1990 booklet 'The brave new world of Health Care' calls the economic health crisis in America with the subtitle 'Health Care as Economic Cancer' (our boldness). As a critic, he stated the most prevailing opinion in 1999, the year this work was published. As an approach to the problem, I believe that his stand is a sign of impotence or worse, despondency. It shows that Mr. Lamm, a former Governor, sees himself as a frustrated politician. I think that, as an outsider, that politicians are quite the opposite of the 'public wisdom' when it comes to handling money. Politicians start from the premise treating a problem starts with throwing money on it. 'Public wisdom' sees the lack of money as a known enemy that should be detoured and avoided. Even the poorest populations, if left alone, deal with scarcity in the best way they can muster. That is why I think that Health Insurance should be left to the public to handle. Politicians, including kings, have fallen to despair in their later days, as is the well known case of King Solomon, who in his golden years was disenchanted with society (Book of Ecclesiastes, compared to the book of Proverbs, which was written when he was younger).

It is almost passively accepted that 41 million Americans can go without health insurance, with many more billions around the world, and of course without proper health care. Today, more than 12 cents of every dollar spent in the United States goes to health care, and the costs continue to rise at more than double the rate of inflation. I am trying to prove that the origin of this crisis not in Medicine as a science, and not in the Economy as a sector, but specifically in medical insurance. The problems I confront may make the readers think pessimistically at the start, but the solutions I offer are optimistic. Not only are they feasible, but they are also close at hand, as the distance between talking and thinking about them. Health insurance has been with us since the beginning of the 20th Century. At the time of its inception, the system intended to cover medical treatment done mostly by doctors personally, including lab tests and surgery. All services were based in small clinics and community hospitals. Doctors were still performing tonsillectomies in private offices in the 50's and 60's, outside the hospitals' operating theaters. Medical treatments were generally less frequent than they are today. The coverage was then adequate, and it was cheaper both at the premium to the individual and relative to the rest of the economy. Among the many causes for increased in medical costs are societal expectations, among the many psychological reasons.

T. V. shows are crowded with 'medical wonders' and technical innovations that take the public imagination hostage, leaving viewers spellbound and in awe. Another very important and objective cause are rising life expectancy and an aging population. Our mean survival age is rising fast, the aged are a larger portion of society, and they consume much more health care services relative to their proportion of society. Another important factor is employers' union labor agreements that promote the expansion of healthcare coverage, with its obvious expenses. General Electric, for example, figured that it had to produce an extra $ 1 billion in 1990 sales simply to cover the expected increases in their healthcare costs. That was in 1990. Today the same principle applies to much smaller companies. That was the main reason for creating Health Maintenance Organizations (HMOs), with the accompanying illusion that they can slow this rapid increase in healthcare costs. In 1999 we witnessed what happened in reality. The HMOs were infected by the fatal virus that killed all other systems of health insurance before them. Another very important factor increasing medical expenses is malpractice insurance, which brought a whole new dimension in litigation, not only against physicians, but against anybody and anything supposed to have produced a real or imagined damage, or just 'suffering'. The appetite comes with the meal. The development of the hospital industry sometimes anticipated demand, especially if somebody else is paying the bill, as in Medicaid and Medicare. To attract Medicaid patients, ‘Medicaid Mills’ were set up in inner cities for outpatient clientele, while hospitals getting most of what Medicare covered. I still didn't mention the practice of ‘recycling’ patients inside hospitals and not even ‘defensive medicine,’ where mostly unnecessary tests and procedures are performed to preempt a future suit. The third party encourages demand solely by existence, and the coverage malpractice insurance provides encourages ‘defensive Medicine,’ which is several digits more expensive than if it were practiced only with common sense. All these factors together spin a vicious circle that accelerates faster than the rate of inflation, and surely faster than the economy as a whole. Technology loves medicine as customer. Where the money goes, development is invited to dinner. As a consequence, we witness the proliferation and sophistication of modem medical technologies, making the (old fashioned) health insurance almost prohibitive. I want to convince you that the crisis arrived because the economy has been unable to develop the tools necessary to cope with these contingencies. When budgets get tied, critics mount in piles, voices raise their volumes and ask for drastic funding cuts.